Where a business failed to ensure that its investment banker maintained the confidential nature of company-related information shared with third-parties, the shared information lost any trade secret designation. Aym Technologies, LLC v. Rodgers, et al., 2019 NCBC 63 (J. Bledsoe). As a result, the business could not maintain a claim for misappropriation of trade secrets when its former consultant allegedly shared the trade secret with a competitor.
Aym Technologies, LLC (“Aym”) provides comprehensive software to the Medicaid intellectual and developmental disability industry (“IDD”). In 2009, Aym entered into an independent contractor agreement (“ICA”) with defendant Gene Rodgers wherein Rodgers agreed to provide consulting services, as well as market and sell products produced by Aym. In early 2013, Aym developed a plan whereby it sought to take advantage of “insufficiencies” it perceived in the IDD market by acquiring certain “at-risk” IDD companies (“Plan”). Per the Plan, Aym would then all of the acquired companies up into a single entity. Aym contended the Plan constituted a trade secret. Later in 2013, Aym convinced Rodgers to assist with its efforts to acquire the targeted companies and, in doing so, shared details of the Plan with Rodgers. In September 2014, Aym retained an investment banker to also help with the Plan, but failed to have the banker enter into a nondisclosure agreement (“NDA”) and failed to instruct the banker to take his own steps to ensure the Plan remained confidential. The investment banker subsequently shared the Plan to various third-parties, including owners of two of the targeted companies. In doing so, the investment banker did not require any of the third parties to sign an NDA or have the third parties give any assurance that the Plan would be kept confidential. Ultimately, with Rodgers help, the two targets were acquired by a company other than Aym, defendant Scopia Capital Management, LLC (“Scopia”). Aym brought suit against Rodgers and Scopia and asserted multiple claims for relief, including a claim for misappropriation of trade secrets (“MTS”) based upon Aym’s assertion that Rodgers shared the Plan with Scopia. Rodgers and Scopia both sought summary judgment on the MTS claim on the basis, inter alia, that the Plan could not be a trade secret because Aym had failed to take steps to maintain its secrecy.
The Business Court agreed. Stressing the need for a business to take steps to maintain the secrecy of its trade secrets, the Business Court held that Aym failed to take such steps when it shared the Plan with its investment banker without requiring an NDA and without instructing the broker to maintain the Plan’s confidentiality. The banker’s subsequent failure to require third parties to sign an NDA or otherwise agree to maintain the confidential nature of the Plan was further proof that Aym (and its agents) had failed to take the statutorily-required “reasonable efforts under the circumstances” to maintain the secrecy of the Plan. (Opinion, ¶ 49). For this reason (among others), the Business Court dismissed Aym’s MTS’s claim.
Based upon this decision, a business that enlists the help of an investment banker to obtain financing and/or to assist with the execution of its business strategy should ensure not only that the banker herself signs an NDA, but also that the banker will maintain the secrecy of any potential trade secrets that will be shared with third parties.
Additional legal points from this decision:
- For publicly available information to constitute a trade secret, the information must be manipulated and/or compiled in such a way as to give it unique value. (Opinion, ¶ 35).
- North Carolina law does not permit a subsequently provided affidavit to contradict deposition testimony. (Opinion ¶ 68).
- Where a contract fails for lack of consideration, no claim exists for a breach of the implied covenant of good faith and fair dealing contained in said contract. (Opinion, ¶ 72 fn. 5).
Categories: Key Business Court Decisions